Iran Primer: Iran and China

by JOHN S. PARK

[ primer ] Iran and China established diplomatic relations in 1971, but trade started in 1950. Since 1982, Sino-Iranian economic and technological cooperation has progressed significantly. In 1985, they set up the Joint Committee on Cooperation of Economy, Trade, Science and Technology to collaborate on energy, machinery, transportation, building material, mining, chemicals and nonferrous metal.

The symbiotic Iran-China relationship dates to the early 1990s, when Beijing became a major oil importer. As Chinese economic growth accelerated, Beijing's energy needs increasingly defined its political ties with Tehran. By 2009, Iran provided 11 percent of China's oil imports, ranking third after Saudi Arabia and Angola, according to Chinese customs data.

Trade between Iran and China soared from $4 billion in 2003 to over $20 billion in 2009, according to the International Monetary Fund. China's major exports to Iran have been machinery and equipment, textiles, chemical products and consumer goods. A significant portion of Chinese shipments has reportedly been funneled to Iran through China's trade with the United Arab Emirates. China has also been selling refined gasoline to Iran, which lacks the refineries to meet its domestic needs.

Strategic implications

Growing commercial ties have significant strategic implications, with Beijing reaping the larger immediate benefits. China's engine of economic growth is relatively well developed and maintained by a leadership group dominated by able technocrats. China, with a population of 1.3 billion, is increasing the living standards of more of its citizens each year. Iranian oil helps keep this engine running. In contrast, Iran's economy has contracted as a result of ineffective government policies. Sanctions have compounded--but not caused--this economic decline.

Iran's economic difficulties--including an acute shortage of refined gasoline capabilities--have created unique opportunities for China. Beijing's noninterventionist foreign policy principle enables it to pursue a commercial policy that has no linkage to human rights or nuclear proliferation. So the Iranian nuclear issue has not affected commercial Sino-Iranian relations, despite Tehran's widely suspected weapons development activities. China's support of the fourth round of U.N. sanctions on Iran in June 2010 has not halted Chinese firms' commercial activities with Tehran. Beijing says these commercial interactions are not related to Iran's nuclear program. This trend is unlikely to change, despite new unilateral U.S.-led sanctions announced in August 2010 to penalize some foreign firms doing business with Iran.

Chinese investment in Iran will alleviate some of Iran's economic difficulties, but it will not reverse years of Tehran's economic mismanagement. The longer Iran's own engine of economic growth remains dysfunctional, the greater the likelihood of internal political instability in an Islamic Republic of approximately 74 million. For China, that would constitute a direct threat to its energy security.

Turning points

Sino-Iranian relations have been defined by three issues:

First: China's political shift

Premier Deng Xiaoping's introduction of economic reforms in 1979 set the stage for a major transformation of China. Deng's changes in the legal and political foundation of China's economy gradually unleashed the Chinese people's march toward a xiaokang ("well-being") society, where the majority of the population has joined the ranks of the middle class through economic development. Deng promoted slogans like "To be rich is glorious" and "It doesn't matter if a cat is black or white, so long as it catches mice" to motivate his compatriots to use capitalist means to achieve socialist goals.

After major setbacks following Tiananmen Square in 1989, Chinese economic development began to gain momentum again in the early 1990s. In 1992, delegates to the 14th Communist Party Congress officially endorsed Deng's renewed push for a market-oriented economy. China began to import oil after the influx of foreign investment, the growth of its export sector, and the expansion of the middle class. During this period, Beijing intensified efforts to secure energy resources from the Middle East. Commercial ties with Iran became a top priority. Beijing fed its increasing need for Iranian oil, while Tehran imported more Chinese manufactured goods.

Second: China's Muslims

Despite shared economic and geopolitical interests, Beijing and Tehran have clashed over China's treatment of Uighur Muslims in Xinjiang province. Tensions have risen between the wealthy Han majority and the Uighur minority as a result of Beijing's efforts to promote Han migration to Xinjiang. In July 2009, ethnic riots erupted in the provincial capital of Urumqi after the killing of two Uighur workers in Guangdong province. More than 150 people were killed, 800 injured, and over 1,000 arrested. Most of those involved were Uighurs. Tehran sided with its Muslim brethren. Ayatollah Jafar Sobhani said, "In that part of the world, the unprotected Muslims are being mercilessly suppressed by yesterday's communist China and today's capitalist China." And Iran's Foreign Ministry expressed support for "the rights of Chinese Muslims." A Chinese diplomat in Tehran countered that the Xinjiang riots were encouraged by foreign separatist groups and were not connected to religious or ethnic issues.

Both Iran and China sought to defuse tensions. Within days, an Iranian Foreign Ministry spokesman said that Tehran balanced concerns for Muslims with bilateral relations with China. But Iranian concerns about China's Muslim population continued to fester, despite a meeting between foreign ministry officials to discuss the ethnic unrest. Beijing's approach to dealing with the Uighurs is likely to remain unchanged, endangering future ethnic unrest--and tensions with Tehran over a sensitive Chinese core interest.

Third: U.N. sanctions on Iran

After a year of negotiations amid growing Iranian defiance, the Obama Administration secured Chinese and Russian support for the fourth round of U.N. sanctions on Iran in June 2010. U.N. Resolution 1929 restated the Council's longstanding demand that Iran suspend its uranium enrichment activities and peacefully resolve outstanding concerns over the nature of its nuclear program. The additional sanctions primarily targeted Iran's military and financial sectors.

In early August, Chinese Vice Premier Li Keqiang reassured Iranian Oil Minister Massoud Mirkazemi that China would maintain cooperation with Tehran on existing large-scale projects in the energy sector, even after the United States directly called on Beijing to observe sanctions. With more than 100 Chinese state-owned enterprises operating in Iran, Beijing continues to expand its presence in the Iranian market and invest heavily in Iran's energy sector. Gaps left by Western and other Asian firms forced out by sanctions present Chinese companies with strategic opportunities to enlarge their share of key sectors amid reduced competition.

Common regional interests

Two major trends in the growing Sino-Iranian relationship could help bolster regime stability in Iran.

Caspian Sea: The first trend is China's intensifying efforts to gain access to the energy resources of the Caspian Sea region. China's major energy security initiative is to reduce its heavy reliance on maritime oil imports from Persian Gulf states. Iran is a linchpin in this Chinese regional strategy. Beijing's plan to build pipeline access to the Caspian Sea region via Iran reinforces the symbiotic relationship between Tehran and Beijing. In this respect, China has a strong interest in seeing a secure Iranian regime.

Shanghai Cooperation Organization: The second trend is Iran's increasing participation in the Shanghai Cooperation Organization (SCO). It was originally formed in 1996 to demilitarize the border between China and the former Soviet Union. It evolved into a wider regional organization after the Soviet Union's break-up and the independence of Central Asian countries. Since 2005, Iran has had observer status in the SCO. In 2008, Tehran announced it would seek full SCO membership. Despite its limited activities, the SCO could provide Iran an organizational context to forge closer relations with states vital to its interests in Central Asia. Iran reportedly views the SCO as a potential guarantor of its future security.

Greater involvement in the SCO might also further President Mahmoud Ahmadinejad's "Look East" policy, which seeks to build stronger economic, political, and cultural cooperation with non-Western countries. In support of Iranian efforts, President Hu Jintao said in 2009, "Tehran and Beijing should help each other to manage global developments in favor of their nations otherwise the same people who are the factors of current international problems will again rule the world."

* Beijing's growing energy needs are likely to only deepen Iran-China relations for the foreseeable future. China will be relying on the Middle East for 70 percent of its oil imports by 2015--up from 44 percent in 2006, according to the International Energy Agency.

* As Beijing's energy dependence on Tehran grows deeper, its ability to substantively support the international community's efforts to halt Iran's suspected nuclear weapons development activities will be further constrained.

* Without some compromise between Tehran and the international community on its controversial nuclear program, the Iranian leadership is likely to turn increasingly to China to help it cope economically and politically.

* Iran's chronic domestic economic and political challenges pose the greatest threat to regime stability in Tehran and energy security for Beijing.

John Park is a USIP senior research associate focusing on Northeast Asian security, economic, and energy issues and U.S. foreign policy toward the region. This article is presented by Tehran Bureau, the U.S. Institute of Peace, and the Woodrow Wilson International Center for Scholars as part of the Iran project at iranprimer.usip.org.